Banks explore and experiment with new technologies in building for the future

This year, SIBOS focused the industry's attention on the future of banking and the various technologies and new players paving the way for efficiency, transparency and better customer experience. As institutions relook at their business models and prepare for the future, measures against financial crimes are also strengthened to keep safe in the digital era.

More than 8,100 delegates attended SIBOS 2017 in Toronto, Canada

The Asian Banker spoke to leading practitioners about open banking, blockchain, big data, payments and the future of the correspondent banking model

The strongest banks in the Asia Pacific, Middle East and Africa for 2017 were also recognised during the annual Asian Banker Strongest Banks Recognition Dinner

More than 8,100 delegates attended SIBOS 2017 Toronto, exploring various views and insights from financial leaders on this year’s conference theme – building for the future. The event served as a stage for the financial community of large banks, vendors and financial technology (fintech) players to connect, explore and exchange expertise in order to create a better understanding of the relevant developments reshaping the financial landscape particularly transaction banking. Topics such as regulatory changes, distributed ledger, big data, artificial intelligence and machine learning, payments, cybersecurity continue to be topics of discussion but open banking and application programming interface (API) were the buzz words among conversations that occurred during the four-day event from October 16th -19th, 2017.

Here are some of the highlights that emerged from the ground as The Asian Banker spoke to leading players and stakeholders on the key trends and initiatives they are focusing on. The conversations we have had serve as a foundation for our editorial and research content as we continue to cover the future of finance.

The future of technology architecture for banking Building an API first technology based around open banking or open source banking is a key discussion among banks. This new technology architecture encourages collaboration instead of banks individually building everything.

Simon Paris, deputy CEO, Finastra

Simon Paris, deputy chief executive officer (CEO)of Finastra, shared his thought on open banking and building the bank of the future: “I think it starts with the philosophy which is we have to realise as a provider that 90% of the innovation will not come from us. A bank has to realise that 90% of the innovation will also not come from the bank. Both of us have to realise that 90% of the innovation will not come from the country the bank is in. Thus, being open is about embracing capabilities and innovation from wherever it comes from.” API enables seamless, frictionless innovation with other parties.

Martin Grunewald, executive head digital infrastructure at BankservAfrica, sees its company as a the “plumbing” infrastructure for the economy, in which it facilitates interoperability among all these closed looped solutions across the African region. “We need to make sure that our plumbing can cater to all current and future technologies and channels. The movement is towards open APIs and easy integration because as we need to make our plumbing open enough that all these players can participate and that we allow a room for innovation in the customer front-end without worrying at the back-end.”

Tom Eck, global chief technology officer of industry platforms, IBM

Tom Eck, global chief technology officer of industry platforms at IBM, shared that it is taking an open API approach in catering to industries such as financial to make business easier and spur innovation in the industry. “We are also building a third-party ecosystem. We bring fintech’s assets into our platforms which also increases that value of the platform to our clients. Meanwhile, clients have to get their technology base into a ‘digital agility mode’ so they can participate in the API economy. We need to help them get into that position.”

New players in the payments spaceInnovation in payments comes from addressing existing inefficiencies and fragmentation. Alternative payment aggregators and fintechs are entering the market to facilitate better intermediation among parties and build a better digital financial ecosystem.

INTL FCStone Inc. announced during SIBOS that its London-based subsidiary, INTL FCStone Ltd’s Global Payments Division is offering accurate indicative foreign exchange rates, viewable in real-time for more than 175 currencies through its proprietary Global Payments Network. Clayton McDonald, head of global payments for Asia Pacific, commented on the fast-evolving payments space. He mentioned that although there is a huge demand for real-time settlements, accuracy is most important. “Clients would rather not get hit with fees or face issues such as incorrect amount and inaccuracies. However, having said that, we do have a lot of projects involved in blockchain and real-time settlement systems as we try to finds ways to make our processes quicker and more efficient.”

Hank Uberoi, CEO, Earthport

Earthport offers its clients a seamless management of payments globally through a single relationship with an aim to reduce cost and increase speed and transparency. Hank Uberoi, CEO, Earthport shared its insights on the changing international payments landscape. “The correspondent banking model was created 40 years ago and it worked pretty well when there were only a few countries and large value payments that were happening. You fast-forward to today, and you have got more than 200 countries, 150 regulators, thousands of banks and billions of payments. Typical payments go through a lot of processes so it has become quite inefficient, expensive, and lacks transparency."

Making sense of the abundant transactional data Transactional data is abundant in the industry, thus banks have begun exploring big data, artificial intelligence and machine learning. However, to better leverage on data analytics and provide a better customer experience, they must learn from the likes of Google, Amazon, Facebook and Apple.

Venkat ES, managing director, Bank of America Merrill Lynch

Venkat ES, managing director at Bank of America Merrill Lynch, sees the understanding of clients and data as an underlying core driver for its growth momentum for its treasury products. “The differentiation is primarily driven on trying to get to understand the client needs in a far more insightful way. It is like a consultative process. Technology is just one of the enabling tools.”

Haytham El Maayergi, global head of transaction banking, ADIB

Haytham El Maayergi, global head of transaction banking at Abu Dhabi Islamic Bank (ADIB), shares that the opportunities within wholesale bank lies a lot on how banks drive value for customers. “We are looking more into the customer experience and journey instead of products and features. From the initiation of the transaction to the fulfilment.”

Satish Vallat, principal consultant, TCS Financial Solutions

Satish Vallat, principal consultant at TCS Financial Solutions, echoed the abundance of data in transaction banking and the availability of cheaper infrastructure make sense of these data. “There is available computing horsepower today at the price-point, which can actually deliver digital insights for customers to better run and manage their businesses. Financial institutions are the ones that have tons of data, and today they have begun to look at structure and unstructured data more seriously.” TCS has been exploring artificial intelligence and working on conversation user interface (UI). He shared that it is beyond chatbots. “Conversation UI is understanding the context of what is spoken, extracting the meaning, firing the necessary queries, running analytics and integrating that back to a contextual response.” He also touched upon open banking and the co-existence of financial institutions and fintechs. He attributes the higher degree of collaboration between the two parties on the understanding that financial institutions are entities that are regulated and governed, with all the capabilities needed in conducting seamless financial transactions. Meanwhile, fintech are business originatorsand enablers. “A coexistence of the ecosystem is very powerful. Banks attempting to expose APIs is a big capability that is needed.”

The realisation of blockchain Blockchain or distributed ledger technology has been hyped up to transform the bank processes and address various inefficiencies in transaction banking. A particular use case for this technology is on smart contracts. However, most banks argued that the full protentional and usability of the technology will only be reached when it is adopted by all industry players and parties.

Serge Nazorov, CEO, SmartContract

Serge Nazorov, CEO, SmartContract shared its company’s vision of creating a “golden source of truth” - a valuable complete record so that most of the parties in the transaction and internally can look at it and for 90% of their questions – can get their questions straight from that record. The problem in many current scenarios is varying systems and unavailability of services which leads to cost of capital, hindrance to speed and fraud situations. “The goal is to have a middle ground where a shared record has 90% of the answers to 90% of the people. In the open source world, we want our blockchain middleware to have the most valuable integrations as possible so anybody who shows up looking for any type of data, any type of proof of payments can get it very quickly from a contract without having to talk to the data or payments providers.” Moreover, the value of the middleware completely lies on security. It is important to have an end-to-end set-up that provides the same level of assurance as the piece in the middle which is the contract.

Jesse Lund, vice president for global blockchain market development, FSS, IBM Industry Platform, said “blockchain in general is a new emerging space and for IBM with a 107-year legacy to be focused on this technology is a big statement by itself." He describes blockchain group within IBM like a start-up company. “It marks the fundamental change on how we are interacting with our clients. Rather than just approaching them as a technology provider, IBM is really engaging as a collaborative partner and a co-investor in very important areas.” In July 2017, IBM’s Hyperledger released a new blockchain code "Fabric" to the public.

Rob Palatnick, managing director and chief technology architect, DTCC

Rob Palatnick, managing director and chief technology architect at DTCC, discussed its plan to replatform the credit default swap project, a trade information warehouse of credit default swaps, built on a mainframe in 2006. “Working with an industry group, we decided to implement it on a distributed ledger. We did a proof on concept of the technology and it proved successful. The goal is to basically replace the mainframe and eventually turn off the mainframe, and go live on a distributed ledger platform inside of DTCC as phase one. Future phases are going to allow clients to take down nodes and DTCC already set up a governance model that will allow us to be adult in the room and make sure that ledger is operating properly with integrity.”

Aziz Parvez, managing director, head trade & supply chain finance Asia Pacific at Bank of America, commented that although a lot of work is being done with blockchain, the technology is still at its early stages. In order for the industry to fully utilise the technology, its broad acceptance within and outside the financial industry silo is required. Moreover, its relevance is also dependent on how regulators look at the technology. “The entire ecosystem is needed.”

Peter Randall, CEO of SETL

Peter Randall, CEO of SETL, shared that in order for blockchain to be of any use in financial services, it should be able to do five things: operate at a very high speed, have a capacity to address hundreds of millions of accounts at the same time, crypto security, must deal with real-world assets, and interoperability. He emphasised that SETL works on real projects and not on proof of concepts, hackathons, and lab crawls; and that its software is not open source. “I do not want to give my software to the community so they can look at it. Because the bad people will look at it as well, and will hack it. It is entirely owned, written, and patented by us, allowing us to have control over the cryptography and cybersecurity”.

Keeping safe in the digital era In line with technological advancement is the sophistication of cyberthreats and attacks. Fraud, security and regtech are hot topics as the industry is more pressured to meet compliance requirements and ensure the safety and soundness of the whole financial system.

Mark Evans, managing director of transaction banking, ANZ

Mark Evans, managing director of transaction banking at ANZ highlighted the importance of cooperation in solving financial crimes. “In isolation, no one bank can stop money laundering. The reality is we need to work together as an industry with our regulatory colleagues and law enforcement parties, in tandem with educating the public, is the best form of defence against terrorist finance.”

For Andrew Davies, Fiserv’s vice president for global market strategy and financial crime risk management, collective action is also important in securing end-to-end points, networks and data lineage. He emphasised that accuracy and effectiveness of security measures are differentiating factors in a more competitive market. There are different layers of protection that banks should look at to have a more efficient defence against cybercrime. Aside from using authentication mechanisms and biometrics to ensure that no data is stolen and that the integrity of the institution is not undermined by any malware or malicious parties, banks must utilise advanced analytics to check and understand if behaviour is consistent with the legitimate use of products and services.

Jafar Amin, regional president and head of the financial institutions group, Asia Pacific at Wells Fargo

Jafar Amin, regional president and head of the financial institutions group, Asia Pacific at Wells Fargo, believes the success of its business cannot only be attributed to its product capabilities, its commitment to the business, and the people on the ground, but also on the bank's investment in risk management and compliance. “We help our customers understand the regulatory requirements around the region. I think the partnership approach has really made a difference. We are successful if our financial institutions customers are successful.”

The future of correspondent bankingLastly, correspondent banking has also experienced pressure as clients are becoming increasingly demanding in terms of speed, transparency and efficiency. There are opportunities to transform the traditional correspondent model especially with the emergence of aggregators. SWIFT launched its own global payments innovation (GPI) initiative, which aims to improve customer experience in correspondent banking. And with future GPI enhancements, banks will no longer need an extensive network of correspondent banks.

John Campbell, head of international transaction banking business, ANZ

ANZ is one of over 70 banks globally who went live with SWIFT’s GPI. John Campbell, head of international transaction banking business of ANZ, sees it as an exciting time for the world of payments as correspondent banking is changing rapidly. He shared that as banks, they have realised the need to do better on pricing, transparency, speed and customer experience. He shared its philosophy, “if there is a problem to be solvedor an opportunity to be gained, that is where get involved. We also like the partnership approach. We don’t have all the answers and we don’t intend to have them all. Hence, we pull-in partners with real skills and figure out how we can work together with an ultimate goal of delivering a better customer experience.”

Paula Da Silva, head of transaction services, SEB

Paula Da Silva, head of transaction services at SEB, also mentioned its participation in GPI. Although, it expressed the how it might be cumbersome for thousands of banks to come together to agree not just on technology but also in legal terms. Moreover, she shared that in many aspects, SEB is trying to collaborate with the new world of fintech. “We are exploring blockchain for trade financing and cash management through both R3 and Ripple. We don’t know if it will prevail but it is very important for us to deliver a better experience for customers. It is important not only to have strategies but to really try it out and potentially fail but continue to try it out.”

Another bank that went live on GPI is Bank of America (BofA). SoumenSircar, head financial institutions, APAC, global transaction services, revealed that this is a great differentiator with clients. “We do have fairly good discussions with clients on what GPI is, in terms of remote transparency, efficiency and transactional speed. I would say that different banks are in different state of readiness in terms of their own GPI plan. Those who are ahead really appreciates what we are doing, those who are still getting there would like to learn from us.”

Asit Oberoi, group president and global head transaction banking, Yes Bank

For Asit Oberoi, group president and global head transaction banking group at Yes Bank, SIBOS 2017 was a fantastic opportunity to engage with colleagues from other financial institutions and technology companies. His conversations and learnings on API and blockchain will serve as ways to compare his bank’s own solutions and identify opportunities to further improve on them. “I walked away from this four-day event feeling satisfied. At Yes Bank, we call ourselves as a technology company in the business of banking. Thus, we will constantly evaluate what we can do better and keep on sharpening our solutions for the clients.”

With all these insights and discussions on the key trends driving the transformation of transaction banking and building the future of finance, it will be interesting to see how institutions explore, experiment and implement and technologies. It will be a matter of time until we see which solutions are just passing trends, and which will prevail and bring value to the whole industry.

During SIBOS, the Asian Banker also took the opportunity to recognise the strongest banks in the Asia Pacific, Middle East and Africa for 2017. The annual Asian Banker Strongest Banks Recognition Dinner was held at the Delta Toronto Hotel. Paul Mahady, CEO and president of MAS Finance gave a keynote presentation on “The convergence of banktech and fintech–thekeydifferences between East and West”. The Strongest Bank in Hong Kong and the Asia Pacific was given to Bank of China (Hong Kong), and the Strongest Bank in Egypt and Africa was awarded to National Bank of Egypt. Recognition were also given to Standard Chartered Bank (Hong Kong), Bank Central Asia (Indonesia), MCB Bank (Pakistan), Union Bank of the Philippines (The Philippines), OCBC Bank (Singapore), Commercial Bank of Ceylon (Sri Lanka) and Vietcombank (Vietnam).

Barnaby Nelson, managing director and head of securities services for Greater China and North Asia at Standard Chartered Bank

Barnaby Nelson, managing director and head of securities services for Greater China and North Asia at Standard Chartered Bank commented “safety and strength of balance sheets are primary considerations for all our investors and clients around the world. Thus, at the end of the day it is a necessary precondition to be able to conduct business.”